Study On The Influence Of Tax Preferential Policies On FDI Location

Foreign direct investment (FDI) solved the problem of China's foreign capital shortage to a great degree, enhanced the technology level and organizing efficiency of China's economy through spillover effect, etc., played a crucial role in the development of import & export as well as in the balance of international payment, therefore it served as a indispensable factor in the long time steady growth of China's national economy. However, there is a huge geographical imbalance of FDI distribution in China. Since the reform and opening-up, China has adopted a series of tax preferential policies to encourage foreign capital, and implemented"double-track system"in the income tax of domestic and foreign enterprises. Although with the reform of taxation system, the income tax of domestic and foreign enterprises was unified, investigation into the influence of tax preferential policies on FDI location is still meaningful for FDI policies review and establishment under the situation of apparent regional differences.The present studies about the tax preferential policies'effects on attracting FDI, including their regional differences in different grades, have not reached a final conclusion. Thus, on the basis of the review of previous studies on FDI location and FDI preferential policies, as well as the analysis of China's tax preferential policies and general situation of China's FDI, this paper utilizes the dummy variables containing ordinal information, adopts panel data regression model of 241 cities in China spanning 1999-2005, in order to analyze the factors influencing FDI location. The empirical result testifies the general positive effect of tax preferential policies on China's FDI. The comparing of location patterns of cities in the east, middle and west of China shows that FDI has dissimilar effects in different grades and regions. Lastly, on the basis of the above analysis, the paper puts forward several policy suggestions.